CHICAGO — Credit is the oil that lubricates the machinery of business. Whether it’s a loan to buy supplies, to support expansion, a capital purchase, or just the need for a short-term loan to meet payroll or other operating expenses, most coin-op laundry owners need to depend on credit at some point. Unfortunately, the upheaval in today’s economy has resulted in a credit crunch that seems to have made it tougher than ever for business owners to swing a loan.
Still, for those in the know, there are enough options available to make the task a little easier. Money may be tight, but business loans are being made every day to those who know how to ask.
“In today’s banking climate, good deals still get done, but with more equity, more collateral and much higher credit scores required of the borrower than in the past,” says Linda Feltman, Pennsylvania State University, Small Business Development Center.
If you’re looking for financing for your coin-op business, now or in the future, here are some choices along with hints on how to greatly improve your chances of coming away with the money you need:
The first place most coin-op laundry owners turn to when they need a business loan is their local bank. That’s why it’s essential to build a solid business relationship with your bank well before you need to ask them for money. Allowing your bank to become familiar with your business sets the stage for the time when you need to ask for a loan.
“The news media tends to lump all banks together when it come to tight money,” says Bob White, president of Abington Bank, Jenkintown, Pa., “but there are big differences among banks. Like many other small community banks, we have always followed conservative lending practices. As a result, our default rates haven’t suffered and we’re in the same healthy position for making loans now that we were four years ago.”
Even after establishing a relationship, some business owners meet with frustration when the bank turns down their loan application. Most bankers agree that this is often because the owner has failed to come prepared with the information a lender needs to make a positive decision.
“How to find the money to finance a renovation, expansion, or other need is the last thing that many business owners think about when they plan a project,” says James G. Marshall, vice president, Fulton Bank, Lancaster, Pa. “It’s best to have a team lined up behind you when you plan a major financial move — and your bank should be a member of that team.”
How should you prepare for a meeting with a bank loan officer? Marshall suggests that you come armed with:
- Financial statements for your existing business
- Accountant-prepared financial projections and cash-flow analysis
- Marketing feasibility study for the project
- Owner’s personal financial statements and tax returns
- Information on the background and experience of owner(s)
“With this information,” says Marshall, “the bank can give proper consideration to your loan application.”
Be careful to avoid the red flags that may raise concerns in the mind of a loan officer. “One of the things that would turn me off,” says White, “is an applicant who has over-leveraged himself or recently financed the purchase of an expensive asset. And, of course, it’s absolutely essential that the applicant be honest and up-front with all pertinent information.”
Check back tomorrow for Part 2: What happens when the bank says no?